Matt Rodak was frustrated.
It was 2012, and the insurance executive was tired of the paperwork, lack of transparency and high interest rates inherent in dealing with “hard lenders” — private investors who issue loans for the short-term, fix-and-flip projects banks generally eschew — to fund his own residential renovate-and-resell sideline. He compared the experience to that provided by peer-to-peer lenders, such as Lending Club and Prosper, that offer individuals and institutions the opportunity to invest in personal loans made on their online platforms.
“I was lending money out on the Lending Clubs and Prospers of the world, and I’m getting a 9 or 10 percent return on unsecured consumer credit,” the Canton-area native, 35, recalls. “And at the same time, I’m paying my lenders on my real estate business upward of 18 percent interest and starting to scratch my head and say, ‘Well, this doesn’t make a whole lot of sense.’ If people are willing to invest in unsecured consumer credit and get a 9 or 10 percent return, and people like me are willing to pay upward of 18 percent for these hard-money loans, why don’t we bring these two ideas together and create a better experience for borrowers who are looking to borrow money for real estate investing and also create new opportunities for investors?”
That epiphany was the basis for founding Fund That Flip, an online platform for investing in and obtaining loans for renovating residential real estate short term.
Although the enterprise was incorporated five years ago in New York City, where chief executive officer Rodak maintains a staff of 10 capital-market and tech types in the Flatiron District, the rest of its 50-plus employees are in the AECOM Building in Downtown Cleveland. Since making its first loan in January 2015, the platform has raised close to $300 million from accredited investors throughout the country.
“We have access to over a billion dollars through different institutional capital partners that we have relationships with,” he says.
The company has funded approximately 15,000 projects in 22 states, from the East Coast to Florida and Texas. Although most loans are made for rehabbing existing structures housing one to four families, 20 to 25 percent are for new construction. Rodak points to local projects in Tremont, Ohio City, University Circle and the near West Side.
“Our new construction is much more focused on infill [lots in] supply-constrained, higher-density areas where we think there’s just a little bit more liquidity for the dirt, as well as for the finished product,” he says.
According to Rodak, professional real estate developers like the platform because it provides access to reliable, stable capital.
“We’re not a lender for someone who watched HGTV and thinks that this could be a fun hobby,” he stresses.
The appeal to individual and institutional investors alike lies in an interest rate higher than generally available in today’s economic environment — typically 8 or 9 percent — on a minimum $5,000 short-term investment that is secured with first-position mortgages. They also have the option of investing in longer-term loans on properties developers decide to maintain as rentals.
“People are able to build up a portfolio of loans all across the country, and do so from the comfort of their homes, knowing that they’ve got someone who’s experienced on the other side of that in terms of underwriting and originating the loans,” he adds.
Rodak developed a passion for real estate growing up in Louisville, near Canton. As a teen with his own landscaping business, he mowed and weeded the lawns of distressed properties local investors were renovating to resell or rent. He admired their ability to see what a rundown house could become and how an entire block benefited from its transformation.
“I also started to see the amount of money these guys were making and thought, ‘Man, that’s something I’d like to do when I grow up,’” he recalls.
After earning a bachelor’s degree in finance from John Carroll University, Rodak took a job with FM Global, a commercial property insurance company. During the next seven years, he worked his way up from middle-market production underwriting at the company’s Cleveland office — a role he describes as “one part new business development and one part underwriting risks” — to helping institutionalize the middle-market sales and marketing function at FM Global’s Rhode Island headquarters.
“I learned a ton about how to run a business and how to innovate within a business,” he says. “I also like to say the biggest lesson I learned was that I did not want to be an insurance executive for the rest of my life.”
After learning about the lending side of the real estate business by working on the aforementioned projects, both on his own and with partners, Rodak moved to New York City and incorporated Fund That Flip in 2014. He notes that in 2012 — around the same time he came up with the idea for his company — Congress passed the Jumpstart Our Business Startups Act, legislation that made it easier for small businesses to raise money by, among other things, relaxing solicitation restrictions on accredited investors. These are people defined as those who earned at least $200,000 annually for the last two consecutive years or had a minimum net worth of $1 million, either alone or with a spouse.
“[It] kind of helped me think, ‘Man, the stars really seemed to have aligned around this. If I don’t give it a shot, I’m probably going to regret it for the rest of my life,’” he remembers.
By 2015, Rodak was working out of a Madison Avenue WeWork office with two co-founders. Two years later, he opened the Downtown Cleveland location with a business development rep in Fifth Third Center, lured by tax credits and grants, the city’s more
central U.S. location and affordable commercial leases.
“Part of the strategy was to tap back into some of my professors at John Carroll and figure out who the smart kids were, [the ones] who were about to graduate, and see if we could hire them,” Rodak says.
The company began building underwriting and loan-closing teams, moving from the Crittenden Building to the Bradley Building to the current East 9th Street location as it outgrew each space.
Rodak plans to have almost 100 people on the payroll in Cleveland by the end of this year. The location will function as the company’s headquarters as it expands its market share and opens satellite offices.
Rodak sees great potential in a tight residential real estate market, where the average age of a house is 37 years old and many buyers are unable or unwilling to make major repairs and renovations. Possibilities include acting as an online broker of property and casualty insurance and offering software tools that help identify new projects, prepare bids and manage contractors.
“The big vision, really, for the business is being a one-stop shop for the professional real estate investor to find, fund and manage their projects more efficiently so they can do more of it and be more profitable,” he says.